Assets as gifts – when independent legal advice is not enough

Mr Neville Paull gave his home to his son Bradley Paull and instructed a lawyer to carry out the legal work for him. The solicitor discussed and advised Neville of the potential risks but Neville decided to proceed.

Some years later, Neville asked the court to overturn the gift on the basis of “undue influence”. Despite the fact that Neville had received independent legal advice before making the gift, the court agreed that Bradley had exerted undue influence over his father and overturned the gift.

Neville argued that there was both a relationship of trust and confidence between him and his son Bradley and also a relationship whereby Bradley had an ascendancy over him to make him vulnerable to his son’s influence. The solicitor advised that he had met independently with Neville and, although he had been anxious, the solicitor concluded that Neville independently understood the nature of the transaction and its future implications. That would seem to have been fairly conclusive in favour of Bradley.

However, it became clear to the Judge that Neville did rely on, and trust Bradley, to deal with many aspects of his finances and general documentation. As such, the gift “undoubtedly called for explanation” as to whether it could reasonably be explained or accounted for on any of the grounds or motives on which ordinary people act. (Paragraph 68).

The Judge stated in his judgement (paragraphs 73, 74 and 76);

“It is not merely that this is a case where an elderly man has stripped himself of the largest part of his assets. It is also a case where the asset disposed of was the home in which he was living and where the disposal of that asset put his home and his continuing entitlement to live in his home with his disabled partner at risk. It is also a case where the effect of the disposal was to leave Neville in the situation where the funds which he had to live on would, in the event that he lost his home, have to be used for rehousing, in reduction, therefore, of the funds available for his and Linda’s (his partner) living expenses.

The circumstances of the transaction also call for explanation. It is clear from the attendance note prepared by Mr Buckley (the solicitor) in respect of his meeting with Neville and Bradley… that no effort had been made to value the property, such as to give Neville any idea of the amount of his capital that he was giving away. It is also clear that the value figure, which appears, in the application to register the transfer, placed a value on the property [is]… somewhat less than one half of its apparent true value. A transaction entered into with such casualness and inaccuracy itself requires to be explained.

This is not the case of a wealthy man disposing of surplus assets, in old age, to procure fiscal, or other benefits. This is the case of an elderly man giving away the home in which he lived and which, objectively, reflected over half his assets, at a time when he was without income, other than any income derived from his other assets and where those other assets, far from being surplus, were the assets upon which Neville relied to live.”

The Judge went on to add that;

“the transfer would not have afforded any protection in respect of liability to local authority care fees” (paragraph 77); and

“In regard to inheritance tax, any potential saving would have been contingent upon Neville living seven years and would, in any event, have been wholly ineffective if, as he has, Neville continued to occupy the property.” (Paragraph 78).

The Judge then turned to the evidence of the solicitor. He noted that, even though the solicitors saw Neville on his own for part of the interview, Bradley had taken his father to the lawyer and been present in part of the interview. The Judge also noted that the solicitor had carefully read through, to Neville, a note prepared by the law firm designed to discourage gifts of this nature. However, the Judge commented that, although it was prepared for clients, the note was “very much a lawyer’s document.” In particular the note did not, with any clarity, make it plain that such a gift was irrevocable and the transferor could not simply “go back”. The Judge considered the note probably simply passed Neville by.

It also transpired that the solicitor had been misled into believing that the property was empty and not Neville’s and his partner Linda’s home.

In conclusion, the Judge found that there had been undue influence and overturned the gift, commenting (at paragraphs 109 and 112):

“The question for determination is not mechanistic, or formulaic. It is not, simply, the case that the provision of certain advice, or certain information to a person presumed to be subject to undue influence will automatically rebuff that presumption. Rather, the question is whether, on a fact sensitive, case-by-case basis, the court can be affirmatively satisfied that the decision of the particular donor, in a case of a gift, to make the gift was a decision freely made by the donor, in full knowledge of the circumstances and emancipated from actual or presumed influence. What may suffice for one donor will not, necessarily, suffice for another.

In such a case, the donor’s trust in the donee and, in consequence, his uncritical willingness to enter into the transaction in question, is likely to require the clearest exposition of the dangers involved in the relevant information before a court can be satisfied that the donor’s decision to implement the transaction was genuinely independent and did not reflect the trust reposed in the donee and the influence, actual, or presumed, emanating from that trust. The greater the trust reposed by donor in donee the greater the clarity that will be required before the court can be satisfied that the influence emanating from that trust has been negated.”

The case is, therefore, salutary to lawyers to make sure that they get full information from the client about all of their assets, income and liabilities and family members and dynamics. It is clearly important to see the client alone – preferably throughout the entire meeting and even having the client come to the meeting without the intended donee in attendance at all. Finally, any briefing notes not only need to spell out the law correctly but also in language that can be readily understood and appreciated by the average lay client, and not just those who might find it easy or easier to understand legal concepts.

For more information

Please contact Donna Holmes or Lucy Bluck

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